Question 1

Beacon Corp. has available-for-sale debt securities with the following data at year-end:
- Amortized cost: $450,000
- Fair value: $420,000
- Previous cumulative unrealized loss in OCI: $15,000

What journal entry should Beacon record at year-end?

Accepted Answer

Calculate the total unrealized gain/loss (fair value vs amortized cost), compare to the existing OCI balance, and adjust for the difference. AFS securities' unrealized gains/losses flow through OCI, not net income.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Recording unrealized gains/losses in net income instead of OCI, recording the total unrealized amount instead of the change, or getting the debit/credit direction wrong

Beacon Corp. has available-for-sale debt securities with the following data at year-end:<br/>- Amortized cost: $450,000<br/>- Fair value: $420,000<br/>- Previous cumulative unrealized loss in OCI: $15,000<br/><br/>What journal entry should Beacon record at year-end?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 2

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